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Are People Inequality Averse Or Just Risk Averse?

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  • Carlsson, Fredrik

    ()
    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

  • Daruvala, Dinky

    ()
    (Department of Economics)

  • Johansson-Stenman, Olof

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

Individuals’ preferences for risk and inequality are measured through experimental choices between hypothetical societies and lotteries. The median relative risk aversion, which is often seen to reflect social inequality aversion, is between 2 and 3. We also estimate the individual inequality aversion, reflecting individuals’ willingness to pay for living in a more equal society. Left-wing voters and women are both more risk- and inequality averse than others. The model allows for non-monotonic SWFs, implying that welfare may decrease with an individual’s income at high income levels. This is illustrated in simulations based on the empirical results.

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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 43.

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Length: 29 pages
Date of creation: 23 May 2001
Date of revision:
Handle: RePEc:hhs:gunwpe:0043

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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: inequality aversion; risk aversion; welfare theory;

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